The Liability of Foreignness of Emerging Market Multinational Enterprises Operating in Overseas Markets
: A Study of Chinese Multinational Enterprises

Student thesis: Doctor of Philosophy (PhD) - CDU

Abstract

This thesis examines the challenges experienced by emerging market multinational enterprises (EMNEs) while operating in foreign markets and explores how dynamic managerial capabilities of EMNE foreign subsidiary firms help mitigate such foreignness effect. Consequently, this study examines liability of foreignness as a key construct. The study brings together the extensive literature on the phenomenon of foreignness into a holistic theoretical framework by integrating institutional theory, resource-based view and dynamic managerial capability perspectives. It includes context free factors that can be applied to all multinational enterprises (MNEs) in general and context-embedded aspects relevant to EMNEs. Through integrating multiple theoretical lenses at multiple levels, this framework highlights the multifaceted nature of the liability of foreignness imposed on EMNEs operating in foreign markets in terms of intensity and direction. Accordingly, hypotheses were developed and moderated hierarchical multiple regression analyses, supplemented with Hayes (2018) PROCESS procedure, were applied to 303 survey data collected from senior managers of Chinese MNE foreign subsidiaries between year 2019 and 2020 to answer research questions.

This thesis maintains that it is the outsiderness’, in the form of exclusion from local access and acceptance, that disproportionately affects and denies EMNE foreign subsidiary firms the benefits enjoyed exclusively by the insiders in the respective host countries. It was found that EMNE foreign subsidiaries’ host country information access is positively associated with the perceived psychic distance between home and the respective host countries, and the firm’s competitiveness. The positive association between EMNE subsidiaries’ host country information access and the perceived psychic distance between home and respective host countries are mediated by the home normative pressure derived from the home institutional environment and moderated by managerial opportunity confidence. The positive relationship between EMNE foreign subsidiaries’ host country information access and firm competitiveness is also mediated by managerial cognitive adaptability and moderated by managerial flexibility. Furthermore, the EMNE foreign subsidiaries’ host country institutional embeddedness is negatively associated with the perceived psychic distance between home and the respective host countries, but positively associated with the cognitive legitimacy deficit that EMNE foreign subsidiaries experience. The negative relationship is also mediated by the home normative pressure derived from the home institutional environment, whilst the positive association is fully mediated by managerial political and business ties.

By incorporating both context-free and specific themes, this study, theoretically, not only extends and refines existing international business literature, but also builds theory to understand the phenomenon of liability of foreignness in the context of EMNEs. It develops novel dimensions of institution and liability of foreignness for enhancing understanding of the challenges that EMNEs operating in foreign markets have encountered, in the case of Chinese MNE foreign subsidiaries. The multitheoretical and multilevel approach adopted in this study improves our understanding of the antecedent factors and relevant mediating and moderating mechanisms that are most applicable to examining liability of foreignness in the context of EMNEs operating in a foreign environment. Further, the study’s findings provide empirical evidence that dynamic managerial capabilities of EMNE foreign subsidiaries have positive implications on improving the outsider status operating in foreign countries. Practically, the interesting findings imply that managers of EMNEs can also undertake to accentuate the positives of ‘distance’ between home and host countries instead of focusing solely on reducing the uncertainties associated with the distance. The deliberate managerial action contributes to the variations in EMNEs’ strategic behaviour when operating in foreign markets. Given the increasing importance of EMNEs in the global economic arena, an examination of the research findings can potentially deliver long-term global benefits for both EMNEs and the respective host countries. After all, overcoming liability of foreignness is an outcome of a two-way interaction between EMNEs and a given host country institutional environment.
Date of Award2022
Original languageEnglish
SupervisorSusan Bandias (Supervisor), Rajeev Sharma (Supervisor) & Jiang Fuming (Supervisor)

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